World waits to learn the impact of China and India’s rice market surge

The recent rise of India as a rice exporter and of China—somewhat unexpectedly—as an importer is paving the way for increased uncertainty to the global market for the crop, according to one expert at the International Rice Research Institute (IRRI).

Addressing what amounted to a major overhaul of rice distribution last year, Sam Mohanty, head of IRRI’s social sciences division, said that the greater participation of the two countries in the international rice market is likely to expand the volume of trade and bring greater stability to the market.

“But on the other hand, they will also bring greater uncertainty to the market as their politicians will continue to fiddle with domestic and trade policies to support farmers and achieve greater price stability and domestic food security,” Mohanty said.

Markets moving

For 40 years, Thailand, Vietnam, the United States and Pakistan have accounted for 60-70% of the world’s rice exports, while imports have been quite fragmented with the top six importers accounting for only 20-30% of the market.

However, over the last year India’s rice trade has shot upwards to the point that the country will likely take top position in the world for both imports and exports this year. China, meanwhile, came close to displacing Nigeria as the top rice importer in 2012, and in terms of combined grain imports of rice, wheat and corn, saw an upwards of 400% increase over 2011.

“Tight corn supplies and greater demand for wheat from the feed sector increased their imports but nobody is certain why China imported so much rice,” said Mohanty.

“There was no apparent shortage in the domestic market but domestic market prices were higher following the double-digit rise in minimum procurement prices in the last few years, making it attractive for Chinese traders to import cheap foreign rice.”

This trend seems to be continuing into 2013, with China importing almost 700,000 tonnes of rice in the first-quarter and India exporting nearly 2m tonnes.

Long haul

According to Mohanty: “Some indications suggest that China and India are here to stay for the long haul. In the case of India, the government wants to move non-basmati rice from the northwestern states of Punjab and Haryana, which are plagued by water shortages and pest and disease problems, to eastern India.

“Several programmes have been rolled out by the government to expand rice production in the eastern states and the impact is already evident from the rapid rise in production over the last few years.”

China’s government has also been attempting to expand its rice production to keep up with demand, but the rapidly rising costs of production and pressure on rice from other competing crops are likely to keep imported rice a lot cheaper than producing rice domestically.

“Unless the Chinese government is strongly determined to achieve rice self-sufficiency through trade measures, it is reasonable to assume that Chinese imports will continue in the near term to mid-term,” said Mohanty.

What next?

An early conclusion to draw from these developments is that government attempts by India and China to achieve greater price stability and food security might well bring about a situation similar to what has been the case in Southeast Asia.

“This is exactly how Thailand has held the global market hostage through its rice pledging scheme, for which nobody knows how and when the mortgage stocks will rock the market,” suggested Mohanty.

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The recent rise of India as a rice exporter and of China—somewhat unexpectedly—as an importer is paving the way for increased uncertainty to the global market for the crop, according to one expert at the International Rice Research Institute (IRRI).